Discount Window Programs Participation and Pledging Guide

Copyright 2017 Federal Reserve Bank of San Francisco. FedLine, the FedLine logo, FedWire, FedMail, and the financial services logo are registered trademarks or service marks of the Federal Reserve Banks. This document is a summary of general practices for informational purposes only and does not represent a legal offer or agreement by the Federal Reserve Bank. The Federal Reserve Bank reserves all rights, including the right to make changes in its sole discretion without notice, in connection with the matters discussed herein. THE FEDERAL RESERVE BANK OF SAN FRANCISCO PROVIDES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, TITLE, QUALITY, AND NON-INFRINGEMENT OF ANY INFORMATION PROVIDED HEREIN. Any opinions expressed herein do not necessarily reflect the views of the Federal Reserve Bank of San Francisco or the Federal Reserve System. The Federal Reserve Bank of San Francisco does not permit the use of its name in advertising, as an endorsement for any product or service, or for any other commercial purpose. Pursuant to federal law, the Federal Reserve Bank shall have no obligation to make, increase, renew, or extend any advance or discount to any depository institution.

Financial Institution Supervision and Credit Credit Risk Management Overview of the Federal Reserve Bank’s Discount Window The Discount Window is a source of liquidity for depository institutions. It also Pledging of Collateral ensures the basic stability of the payment system by providing funding in All loans from the Federal Reserve Bank must be secured by collateral. Most performing loans or contingency situations. investment grade assets held by depository institutions are generally acceptable as collateral, including: Securities: Primary Credit Program1 U.S. Treasuries, agencies, and GSE obligations Collateralized mortgage obligations Primary credit is the main lending program that provides a back-up source of short-term funds for Corporate and municipal bonds depository institutions. Primary credit is priced at a rate above the FOMC’s target for the federal funds Asset backed securities rate and is normally granted on a “no-questions asked,” minimally administered basis. Various structured securities and instruments Advantages: Loans: Generally, there are no restrictions on borrowers’ use of primary credit Residential real estate loans Ideally suited for contingency planning or operational risk management Commercial, industrial, or agricultural loans Access is generally available until 4:00 p.m. Pacific Time Commercial real estate loans Typical uses include: Consumer loans (includes auto and credit card receivables) Funding an unexpected deposit outflow Qualifying institutions may choose to be a part of the Borrower-In-Custody (BIC) Program, with collateral Avoiding an overnight overdraft or reserve deficiency being held in the custody of the servicer/institution or by an acceptable third-party custodian. Reselling proceeds Requesting Federal Reserve Advances Eligibility to Borrow Requesting an advance is easy. Simply call the Credit Risk Management Department’s toll free number at By law, depository institutions that maintain reservable transaction accounts or nonpersonal time deposits (866) 974-7475. The Discount Window closes at 4:00 p.m. Pacific Time. (as defined in Regulation D) generally may establish a borrowing relationship at the Discount Window. Eligibility to borrow is not contingent on the use of Federal Reserve priced services or having a Federal Information or Questions Reserve account. For additional information, call (866) 974-7475 or visit www.frbdiscountwindow.org. Documents, resources, How to Get Started and contact information specific to the Federal Reserve Bank of San Francisco can be found by using the drop down menu and selecting San Francisco (12th District). To access the Discount Window, borrowers must file the necessary lending agreements and authorizing resolutions under the terms set forth in Operating Circular No. 10: Lending. These documents are available at http://www.frbdiscountwindow.org, under “Agreements.” The documents include: The Form of Letter of Agreement The Form of Authorizing Resolution For Borrowers The Official OC-10 Authorization List The Form of Certificate (Schedule A to Letter of Agreement) 1 Secondary credit is available to depository institutions that are not eligible for primary credit due to their The Form of Letter of Agreement to Correspondent Credit and Payment Agreement (as applicable) financial condition or other factors. Overview of the Federal Reserve Bank’s

Borrower-In-Custody (BIC) Program The Borrower-in-Custody (BIC) Program allows the pledge of collateral in the How to Get Started form of loans held in custody of the depository institutions. This can be used In addition to the Operating Circular No. 10: Lending documents, the following completed documents are required: as collateral to secure advances for the Discount Window, Payment System Application for Borrower-in-Custody Arrangement Risk (PSR), or the Treasury, Tax, and Loan program. In addition, collateral may be Irrevocable Power of Attorney pledged under the BIC Program for the Seasonal Credit Program. Appendix A Imaging Questionnaire, if the institution images loans or generates them automatically Advantages of BIC The institution’s internal credit risk ratings definitions Enables loans to be used as collateral (Discount Window, Payment System Risk, and Treasury The institution’s internal Loan Policy handbook and/or guidelines programs), thereby freeing up more liquid assets, e.g., securities The Form of Agreement for Third-Party Custodian to Hold Collateral, if the loans are held by a Custody and maintenance of the loans remains at the participating institutions third-party custodian, including subsidiaries or affiliates Wide range of loans are acceptable as collateral Test Pledge Listing Submission No fees or stock purchases required After submitting the Application for BIC Arrangement and necessary documents, a response generally will be provided within 30 days. Type of Loans Acceptable for BIC Program Agricultural loans On-going Collateral Maintenance Commercial loans and leases On a monthly basis, the institution submits updated loan balances allowing for the addition and/or Commercial real-estate loans subtraction of loans. Reporting is via email and can be encrypted using the Reserve Bank’s free 2 Construction real-estate loans encryption service (FRSecure Message Center). Raw land loans Annually, the institution is required to certify compliance with the BIC Guidelines. In addition, collateral is 1-4 family mortgage loans (first lien, second lien, home equity) periodically verified through online or on-site reviews. Private banking loans Secured consumer loans (auto, boat, etc.) Information or Questions Unsecured consumer loans Complete information and documentation requirements can be found at http://www.frbdiscountwindow. Credit card receivables (prime and subprime) org/12_bic.cfm or by calling (866) 974-7475. Student loans

Minimum Eligibility Requirements CAMELS composite rating of “1” or “2” (Composite ratings of “3” are generally acceptable)1 “Adequately” or “Well” capitalized as evidenced by most recent capital ratios 1 Similarly, FBO and corresponding branches must be in satisfactory condition. 2 For further information on our encryption service, FRSecure Message Center, go to the link, https://secureemail.federalreserve. Acceptable controls in place to ensure satisfactory compliance with the BIC Program com/, or contact us at [email protected]. Overview of the Federal Reserve Bank’s

Seasonal Credit Program Pledging Collateral The Seasonal Credit Program provides a line of credit to institutions that All loans from the Federal Reserve Bank must be secured by collateral. Most performing loans or experience seasonal fluctuations. It is intended for institutions with $500 million investment grade assets held by depository institutions are generally acceptable as collateral including: or less in deposits. Institutions that experience fluctuations in deposits and loans—caused by construction, college, farming, resort, municipal financing, Securities: and other seasonal businesses—frequently qualify for the program.1 U.S. Treasuries, agencies and GSE obligations Collateralized mortgage obligations Corporate and municipals bonds Advantages of the Seasonal Credit Program Asset backed securities No fees or stock purchases required Various structured securities and instruments Partial and full prepayments on outstanding loans are allowed at any time without penalty Advances under the seasonal line are available daily Loans: Residential real estate loans Minimum Eligibility Requirements Commercial, industrial, or agricultural loans The institution confirms to the Federal Reserve Bank of San Francisco that a seasonal need exists Commercial real estate loans The seasonal need persists for at least four consecutive weeks Consumer loans (includes auto and credit card receivables) The institution funds a portion of the seasonal need from its own liquidity sources For loans, qualifying institutions may choose to be a part of the Borrower-In-Custody (BIC) Program, with collateral being held in the custody of the servicer/institution or by an acceptable third party custodian. Occasionally, institutions may experience unusual seasonal requirements during periods of general liquidity strain that are not adequately identified by the normal seasonal calculations. Reserve Banks have Information or Questions discretionary authority to accommodate such unusual needs. For additional information, call (866) 974-7475, or visit http://www.frbdiscountwindow.org/12_seasonal.cfm.

How to Get Started In addition to the Operating Circular No 10: Lending documents in place, an application for Seasonal Credit must be completed along with the following information:

A brief description of the seasonal factors, requested amount, and requested duration of the credit. A minimum of three years of consistent deposit and loan data is required to adequately analyze seasonal swings. Monthly deposit and loan data can be on a daily average basis, as of a specific day each month, or at month end. 1 To comply with provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), an approved seasonal After submitting the Seasonal application and necessary documents, a response normally will be provided line may be significantly reduced or revoked should an institution, at any time, be classified as a problem institution by a federal within 14 days. banking agency, or if it becomes undercapitalized.